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Edited version of private advice
Authorisation Number: 1052374142602
Date of advice: 31 March 2025
Ruling
Subject: Rental deductions-interest
Question 1
Are you entitled to claim a deduction for the interest expenses you are incurring from loans you obtained to purchase your rental property after you sold the rental property at a loss?
Answer 1
Yes.
Given that the purpose of the loans remain strictly related to the purchase of your rental property which was an income producing asset, you can claim a deduction for the ongoing interest expenses under section 8-1 of the Income Tax Assessment Act 1997.
Further information about the deductibility requirements for loaned funds can be found in the taxation rulings TR 2004/4 Income tax: deductions for interest incurred prior to the commencement of, or following the cessation of, relevant income earning activities and Taxation Ruling TR 2000/2 Income tax: deductibility of interest on moneys drawn down under line of credit facilities and redraw facilities, accessible via the ATO's legal database on ato.gov.au.
This ruling applies for the following period:
Year ended 30 June 20XX
The scheme commenced on:
XX XX 20XX
Relevant facts and circumstances
On XX XX 20XX, you and your spouse bought an investment property at Location 1 for $XX.
You mortgaged the property to a single creditor under two loans, one variable rate investment home loan and one fixed rate investment home loan.
The first loan was for $XX and the second loan was for $XX.
On XX XX 20XX, the property was sold at a loss for $XX.
Due to the loss on sale, both the loans weren't paid in full.
As at XX XX 20XX, the outstanding balances of the loans were $XX and $XX respectively.
At settlement, the security of the two loans were transferred to your residential property at Location 2.
The investment loan contracts remain unchanged besides the change of security from the property at Location 1 to the property at Location 2.
Relevant legislative provisions
Income Tax Assessment 1997 section 8-1